Angel investors are accredited investors.
Individual investors are limited in the amounts they are allowed to invest in all Regulation Crowd-Investing offerings over the course of a 12-month period:If both annual income and net worth are equal to or more than $107,000, then the investor’s limit is 10 percent of the lesser of their annual income or net worth.
During the 12-month period, the aggregate amount of securities sold to an investor through all Regulation Crowd-Investing offerings may not exceed $107,000, regardless of the investor’s annual income or net worth.
The new non-accredited investment limits as of March 17, 2021 are as follows:
(a) The greater of $2,200, or 5 percent of the greater of the investor’s annual income or net worth, if either the investor’s annual income or net worth is less than $107,000; or
(b) Ten percent of the greater of the investor’s annual income or net worth, not to exceed an amount sold of $107,000, if both the investor’s annual income and net worth are equal to or more than $107,000;
There are many different ways to engage a crowd of investors
Create social media pages for your business on sites such as Facebook, Instagram, YouTube or Twitter and post updates and information regularly to entice potential investors. Invite social media contacts to visit your page on Mustrdseed.com/yourcompanyname. Create an email list and continue to expand it as you go, continue to keep potential investors interested using newsletters.
An issuer “founder” may not, directly or indirectly, advertise the terms of an offering made in reliance on Regulation Crowdfunding rules and regulations except for oral or written communications that meet the specific requirements:
A notice may advertise any of the terms of an issuer’s offering made in reliance on Regulation Crowdfunding rules and regulations if it directs investors to the intermediary’s platform and includes no more than the following information:
• A statement that the issuer is conducting an offering pursuant to Regulation Crowdfunding general rules and regulations
• The name of the intermediary through which the offering is being conducted
• Information (including a link in any written communications) directing the potential investor to the intermediary’s platform;
• Factual information about the legal identity and business location of the issuer, limited to the name of the issuer of the security, the address, phone number and Web site of the issuer, the email address of a representative of the issuer and a brief description of the business of the issuer.
Notwithstanding the prohibition on advertising any of the terms of the offering, an issuer, and persons acting on behalf of the issuer, may communicate with investors and potential investors about the terms of the offering through communication channels provided by the intermediary on the intermediary’s platform, provided that an issuer identifies itself as the issuer in all communications. Persons acting on behalf of the issuer must identify their affiliation with the issuer in all communications on the intermediary’s platform.
Notwithstanding the requirement that a notice advertising any of the terms of an issuer’s offering made in reliance on Regulation Crowdfunding rules and regulations include no more than the information specified earlier in this section, an issuer conducting an offering in reliance on Regulation Crowdfunding concurrently with another offering that discloses the terms of the Regulation Crowdfunding offering in the disclosure document for the other offering will not be deemed to have exceeded these disclosure limitations if the disclosure document for the other offering satisfies all the other requirements of this section. If the disclosure document for the other offering is filed on the Commission’s Electronic Data Gathering and Retrieval System (EDGAR), the link required mentioned in the second paragraph (second bullet) may not be a live hyperlink.
For purposes of this section, terms of the offering means the amount of securities offered, the nature of the securities, the price of the securities, the closing date of the offering period, the planned use of proceeds and the issuer’s progress toward meeting its funding target.
Common Stockholders are on the bottom of the priority ladder for ownership structure; in the event of liquidation, common shareholders have rights to a company’s assets only after bondholders, preferred shareholders and other debtholders are paid in full.
There are several disadvantages for investors when it comes to convertible notes;
◦ It can be difficult for investors to establish whether the terms of a particular note offering are fair pre-valuation
◦ convertible noteholders usually cannot take advantage of the long-term capital gains treatment available to stockholders until the time of the note’s conversion
◦ Convertible noteholders are often at the mercy of others, with little power to sway the outcome of their investments (at least until the conversion event)
◦ Often, the valuation of a noteholder’s investment will be determined by future investors who may negotiate a valuation with which the noteholder does not agree.
◦ If convertible notes are uncapped, the interests of the issuer and the noteholders are not aligned when it comes to this valuation, as issuers want the valuation to be as high as possible, while noteholders want the opposite.
Unlike corporations, LLCs do not and cannot have shares. LLCs are owned by one or more members. LLC members can be people or other business entities. Each member owns a membership interest in the LLC expressed as a percentage or units of membership.
In sum, although LLCs cannot issue shares, they can create ownership structures that parallel to those used by corporations and have a fair degree of flexibility in creating the structure.
A general risk involved with these securities is there may be limited (if any) voting powerdue to dilution. (Dilution, or Equity Dilution, is the decrease in existing shareholdersownership percentage of a company because of the company issuing new equity. Newequity increases the total shares outstanding which has a dilutive effect on the ownershippercentage of existing shareholders)
Investments in crowdfunding assets should be viewed as long-term and illiquid investments. Securities purchased in a crowdfunding transaction generally cannot be resold for a period of one year, unless the securities are transferred:
• to the issuer of the securities;
• to an “accredited investor”;
• as part of an offering registered with the Commission; or
• to a member of the family of the purchaser or the equivalent, to a trust controlled by the purchaser, to a trust created for the benefit of a member of the family of the purchaser or the equivalent, or in connection with the death or divorce of the purchaser or other similar circumstance.
An investor may cancel an investment commitment for any reason within 48 hours from the time of his or her investment commitment (or such later period as the issuer may designate). After such 48 hour period, an investment commitment in most cases may not be cancelled.
However, If there is a material change to the terms of an offering or to the information provided by the issuer, the intermediary must give or send to any investor who has made an investment commitment notice of the material change and that the investor’s investment commitment will be cancelled unless the investor reconfirms his or her investment commitment within five business days of receipt of the notice. If the investor fails to reconfirm his or her investment within those five business days, the intermediary within five business days thereafter must:
◦ Give or send the investor a notification disclosing that the commitment was cancelled, the reason for the cancellation and the refund amount that the investor is expected to receive; and
◦ Direct the refund of investor funds
Also, ) If material changes to the offering or to the information provided by the issuer regarding the offering occur within five business days of the maximum number of days that an offering is to remain open, the offering must be extended to allow for a period of five business days for the investor to reconfirm his or her investment.
Under certain circumstances an issuer may cease to publish annual reports and, therefore, an investor may not continually have current financial information about the issuer.
An issuer must continue to comply with the ongoing reporting requirements until one of the following occurs:
1. The issuer is required to file reports under section 13(a) or section 15(d) of the Exchange Act (15 U.S.C. 78m(a) or 78o(d));
2. The issuer has filed, since its most recent sale of securities pursuant to this part, at least one annual report pursuant to this section and has fewer than 300 holders of record;
3. The issuer has filed, since its most recent sale of securities pursuant to this part, the annual reports required pursuant to this section for at least the three most recent years and has total assets that do not exceed $10,000,000;
4. The issuer or another party repurchases all of the securities issued in reliance on section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)), including any payment in full of debt securities or any complete redemption of redeemable securities; or
5. The issuer liquidates or dissolves its business in accordance with state law.
In accordance with Regulation Crowdfunding, General Rules and Regulations the platform’s issuers of securities are subject to ongoing reporting requirements which include the following:
1. Must file with the Securities and Exchange Commission (SEC) and post on the issuers website an annual along with the financial statements of the issuer certified by the principal executive officer to the issuer to be true and complete in all material respects:
2. A description of the issuers financial condition, including, to the extent material, liquidity, capital resources and historical results of operations;
a) The discussion must cover each period for which financial statements of the issuer are provided. An issuer also must include a discussion of any material changes or trends known to management in the financial condition and results of operations of the issuer subsequent to the period for which financial statements are provided.
b) For issuers with no prior operating history, the discussion should focus on financial milestones and operational, liquidity and other challenges. For issuers with an operating history, the discussion should focus on whether historical results and cash flows are representative of what investors should expect in the future. Issuers should take into account the proceeds of the offering and any other known or pending sources of capital. Issuers also should discuss how the proceeds from the offering will affect the issuer’s liquidity, whether receiving these funds and any other additional funds is necessary to the viability of the business, and how quickly the issuer anticipates using its available cash. In addition, issuers should describe the other available sources of capital to the business, such as lines of credit or required contributions by shareholders
c) Any references to the “issuer” under these rules refer to issuer and its predecessors, if any.
3. If an issuer has available financial statements that have either been reviewed or audited by a public accountant that is independent of the issuer, those financial statements must be provided and the certification by the principal executive officer will not be required.
4. The annual report must include the following information
a) The name, legal status (including its form of organization, jurisdiction in which it is organized and date of organization), physical address and Web site of the issuer;
b) The names of the directors and officers (and any persons occupying a similar status or performing a similar function/the term officer means a president, vice president, secretary, treasurer or principal financial officer, comptroller or principal accounting officer, and any person routinely performing similar functions.) of the issuer, all positions and offices with the issuer held by such persons, the period of time in which such persons served in the position or office and their business experience during the past three years, including:
• Each person’s principal occupation and employment, including whether any officer is employed by another employer
• The name and principal business of any corporation or other organization in which such occupation and employment took place
c) The name of each person, as of the most recent practicable date but no earlier than 120 days prior to the date the offering statement or report is filed, who is a beneficial owner of 20 percent or more of the issuer’s outstanding voting equity securities, calculated on the basis of voting power
d) A description of the business of the issuer and the anticipated business plan of the issuer
e) The current number of employees of the issuer
f) A discussion of the material factors that make an investment in the issuer speculative or risky
g) A description of the ownership and capital structure of the issuer, including;
• The terms of the securities being offered and each other class of security of the issuer, including the number of securities being offered and/or outstanding, whether or not such securities have voting rights, any limitations on such voting rights, how the terms of the securities being offered may be modified and a summary of the differences between such securities and each other class of security of the issuer, and how the rights of the securities being offered may be materially limited, diluted or qualified by the rights of any other class of security of the issuer;
• A description of how the exercise of rights held by the principal shareholders of the issuer could affect the purchasers of the securities being offered;
• The name and ownership level of each person, as of the most recent practicable date but no earlier than 120 days prior to the date the offering statement or report is filed, who is the beneficial owner of 20 percent or more of the issuer’s outstanding voting equity securities, calculated on the basis of voting power;
• How the securities being offered are being valued, and examples of methods for how such securities may be valued by the issuer in the future, including during subsequent corporate actions;
• The risks to purchasers of the securities relating to minority ownership in the issuer and the risks associated with corporate actions including additional issuances of securities, issuer repurchases of securities, a sale of the issuer or of assets of the issuer or transactions with related parties; and
• A description of the restrictions on transfer of the securities, as set forth in §227.501
h) A description of the material terms of any indebtedness of the issuer, including the amount, interest rate, maturity date and any other material terms;
i) A description of exempt offerings conducted within the past three years; (In providing a description of any prior exempt offerings, disclose)
• The date of the offering;
• The offering exemption relied upon;
• The type of securities offered; and
• The amount of securities sold and the use of proceeds
j) A description of any transaction since the beginning of the issuer’s last fiscal year, or any currently proposed transaction, to which the issuer was or is to be a party and the amount involved exceeds five percent of the aggregate amount of capital raised by the issuer during the preceding 12-month period, inclusive of the amount the issuer seeks to raise in the current offering, in which any of the following persons had or is to have a direct or indirect material interest
• Any director or officer of the issuer
• Any person who is, as of the most recent practicable date but no earlier than 120 days prior to the date the offering statement or report is filed, the beneficial owner of 20 percent or more of the issuer’s outstanding voting equity securities, calculated on the basis of voting power
• If the issuer was incorporated or organized within the past three years, any promoter of the issuer; or
• Any member of the family of any of the foregoing persons, which includes a child, stepchild, grandchild, parent, stepparent, grandparent, spouse or spousal equivalent, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships. The term spousal equivalent means a cohabitant occupying a relationship generally equivalent to that of a spouse.
*For each transaction identified, disclose the name of the specified person and state his or her relationship to the issuer, and the nature and, where practicable, the approximate amount of his or her interest in the transaction. The amount of such interest shall be computed without regard to the amount of the profit or loss involved in the transaction. Where it is not practicable to state the approximate amount of the interest, the approximate amount involved in the transaction shall be disclosed
*A transaction includes, but is not limited to, any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or any series of similar transactions, arrangements or relationships
k) Whether the issuer or any of its predecessors previously failed to comply with the required ongoing reporting requirements
Terms & Definitions
Regulation A is an exemption from registration requirements—instituted by the Securities
Act—that applies to public offerings of securities that do not exceed $50 million in any one-year
period. Companies utilizing the Regulation A exemption must still file offering statements with
the Securities and Exchange Commission (SEC) .
Now that you’ve made it to the site, your interest in equity Crowdfunding has peeked and you would like to go forward with purchasing shares, here is what’s to follow: